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Articles from 2009 In April


Safeguard Self Storage Hires Marketing/Consulting Firm

Atlanta-based Safeguard Self Storage has signed on as a client with Definition 6, an interactive marketing agency and consulting firm. The company has experience in redefining brands through the use of online technology. Safeguard’s contract includes interactive strategy consulting, website enhancements and transitioning the existing website to a .NET with Umbraco CMS. Definition 6 will also implement a search-engine marketing campaign, and manage and optimize the SEM and paid search campaign efforts.

Safeguard Self Storage, in operation since 1989, has facilities in Florida, Georgia, Illinois, Louisiana, New Jersey, New York, Pennsylvania and Virginia.

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Self-Storage Developers Battle City Council in Lake Elsinore

A plan to build a self-storage facility at the south end of Lake Elsinore, Calif., that previously received the blessing of the Planning Commission got a non-supportive response from the City Council on Tuesday. The council voted 1-4 against the project, with Councilman Thomas Buckley’s dissent intended to postpone the decision.
 
The project’s developers, Mike Dunn and Ron Amburgey, must now rework the plan to appease local residents, who voiced opposition at Planning Commission meetings. Dunn and Amburgey want to build a three-building, 217-unit project with 61 outdoor spaces for RVs and boats. Self-storage may be the only use for the lot, as an earthquake fault line runs through it.
 
Some council members oppose the project, saying it does not coincide with the regional habitat-conservation plan or the area’s “Dream Extreme” concept, referring to the city’s reputation for hosting adventurous sports activities.
 
Amburgey was aggravated by the council’s action, but said he and Dunn would consider their next move.

Source: The Californian, LAKE ELSINORE: City Council disdainful of self-storage project

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Lake Elsinore Self-Storage Business to Be Built on Earthquake Fault Line

Girls Body Found in Michigan Storage Unit

The body of a nine-year-old quadriplegic girl was found in a self-storage unit last week in Vienna Township, Mich. The girl’s adoptive mother, 39-year-old Lorrie M. Thomas, wrapped Shylae Thomas’ body in a garbage bag surrounded by mothballs and packed her in a plastic tub, according to prosecutors.
 
Thomas rented one of 170 units at Stor & Lock about six weeks ago. Investigators said she made up a story about sending Shylae to Virginia with a friend.
 
The autopsy showed that Shylae died from chronic malnourishment and neglect. Thomas is charged with second-degree murder and child abuse.
 
Shylae lived with Thomas and seven other children, who have been removed from the home and placed in emergency foster care.
 
Source: The Flint Journal, Storage businesses allowed little oversight over renters

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ISS Blog

Spring Brings Critters, Critters Create Cranky Customers

Ah, spring. So many lovely and yet maddening things about it. The earth re-awakens, blanketing the world in fresh scents and colors. That means leaves and buds abound (thank you, allergies). The days are getting longer (more time to work in the yard—thank you, allergies). And the air and land are buzzing with all manner of critters who slept through the winter or were just hatched this season. (Last week, a giant wasp camped out on my back door and would not leave. For two days, I refused to take out the trash. It was terrifying.)

All of this can bring challenges for the self-storage operator, who now has to keep on top of landscaping and pest-control issues. April showers may bring May flowers, but they also bring the threat of water damage and mold as well as swells of birds and bugs.

Last week, a self-storage tenant in Orlando, Fla., submitted a letter to Greg Dawson of the Orlando-Sentinel. Greg writes a column called "The Last Resort," a consumer-advocacy initiative. The self-storage customer wrote to complain about a rat attack:

We had all of our household belongings stored at Compass Self Storage in east Orlando for about 13 months ... During the time our stuff was there the building became infested with rats. All our belongings were covered with urine and fecal matter. Management has been dodging us. They will not do anything to replace our stuff and won't say whether they will compensate us. We had $5,000 to $6,000 of stuff damaged or ruined by the rats.

I'm still baffled by the total worth of goods tenants will store in a unit (doesn't the operator include a value limit in his rental agreement?), but that's beside the point. The issue here is rodents and who bears the liability for the damage they cause. In this case, Greg contacted Compass President and CEO Todd Amsdell, who explained that the facility butts up against a nature preserve, and managers put out rat traps after the issue was reported. Todd assured Greg the issue would be resolved, and it was: The tenant wrote in to say he and the storage operator had come to an agreement.

Yesterday, a Self-Storage Talk member shared a problem she recently had with a tenant. The customer complained about having mice in her unit, but because her daughter had asthma, she didn't want to use poisons. One day, she barged into the office with some clothes in hand, claiming the mice had eaten holes in them. She was upset and unreasonable, threatening to sue and get local TV stations involved. The manager had to call the authorities. (For the full thread, including pest-control tips, read "Rodent issues and more.")

Pest-control problems are not new to self-storage, but they can be extreme when they occur. Thankfully, most are manageable with a few preventive and actionable measures. For example, managers report using Cedarcide and bait stations as non-toxic solutions. If you're interested, here are a few articles you may find useful:

If you've uncovered any nifty pest-nipping tricks, please share them in the blog. You may just save a fellow operator from pulling his hair out this season.
 

Self-Storage in the North-Central States: Real Estate Snapshot 2009

This month, I assembled a roundtable of real estate experts to discuss self-storage in the north-central states. I asked them to comment on their local markets and share their predictions for future performance. Joining us in this month’s discussion is:

  • Bruce Bahrmasel, Landstar Realty Group, Chicago
  • Robert Brehmer, NAI Daus, Cleveland
  • Larry Goldman, RE/Max Best Associates, Kansas City, Kan.
  • Chris Hitler, Investment Real Estate Specialists, Mequon, Wis.
  • Sheldon Johnson, Johnson Group, St. Louis

1. The market has provided a unique dilemma for self-storage owners because cap rates are going up dramatically, which causes values to decrease and loan-to-value (LTV) ratios to increase. Are you seeing concern in your market about this problem, and how are owners solving it?

Bahrmasel: Self-storage owners in Illinois and Indiana are starting to understand the reality of the current market in which values can, and do, go down. One seller has significantly lowered his asking price and, as a result, a contract was generated from a buyer who had looked at the property several months earlier when it was priced about 12 percent higher. Another seller has agreed to carry a second mortgage to facilitate a transaction he never would have considered a year ago. A ready, willing and able buyer in this market is very tough to pass up.

Brehmer: Owners in Ohio are aware that cap rates are increasing in addition to LTV ratios. Some lament that they did not sell when the opportunity was there. I’ve been suggesting partial or total owner financing given the limited returns in alternative sources of investment. In the current economy, a seller could invest his proceeds with a bank or in a CD and earn a paltry but safe return, or he can provide the financing for the deal and earn a higher rate of return, which is secured by the borrower and the property. 

Goldman: I’ve been involved in transactions where banks are replacing thinner, less experienced borrowers with more seasoned players, which leads to a consolidation of the industry. In some cases, while the banks do not control the properties, they are taking an active role in the negotiation of the sale. They tend to be win-win-win transactions: the sellers walk away whole; the lenders keep quality loans with stronger borrowers; and the buyers pick up great assets with terrific loans in an industry that is normally very difficult to buy into.

In other cases, sellers are more open to carrying paper than they have been in the past. Many buyers and lenders understand the storage industry is more desirable than retail and office properties in this economy.

Hitler: In Wisconsin, the vast majority of storage facilities are owner/operator-based, and most have been owned for 10 years or more by the current owner. Consequently, they are not saddled with the debt levels of many recent storage deals.

Having said this, we are seeing a couple of properties surface that were either refinanced or built within the last five years that are unable to make their debt payments and are soon to be in receivership. The workout will likely come from a third party with storage-management experience that can stabilize the property’s operation and enable it to be sold at a valuation close to the mortgage amount.

Johnson: Due to the short-term nature of self-storage rentals, lenders are being required to take a harder look at credits, usually requiring 25 percent to 35 percent of equity in transactions. Also, the regulation “mark to market” approach is causing appraised values to diminish by using higher cap rates. Owners are adjusting by being more realistic about the activity from potential buyers. Also, some owners may choose to escrow funds to guarantee a higher occupancy level and help a transaction close.

2. Many owners across the county have told us that their rates, occupancies and concessions are currently stable, but they are seeing delinquencies increase. What is the experience of owners in your area and how are they addressing delinquencies?

Bahrmasel: Owners in my market have reported increased concern over delinquencies. Some say they’re being more aggressive in their collections and voicing concern that renters who are more than 60 days past due don’t go beyond the point where an asset turns into a liability.

Brehmer: The owners I’ve spoken to in Northeast Ohio say delinquencies have only marginally increased. Moreover, they’re leasing units to foreclosed homeowners who are seeking storage for excess belongings as they move into smaller homes. This will tell whether these tenants will pay until the total rent eclipses the value of the stored items. Rents in these areas are also holding steady.

Goldman: Delinquencies are often a function of management. In Kansas and Missouri, we’re not seeing an increase in delinquencies across the board, only in certain situations where management does not stay on top of collections.

Hitler: I’ve spoken to several hundred self-storage owners this past quarter and been pleasantly surprised by their responses. Business is either good or very good, and the vast majority are seeing occupancies at or exceeding historic norms without corresponding increases in concessions. Only a small minority have seen their occupancy fall in the past six months. Delinquencies have ticked up for most owners, but only by a few percentage points.

Johnson: In the St. Louis area, we are seeing a small increase in delinquencies due to general economic conditions. Time will tell if this trend is more of a temporary effect or if the overall economic climate is changing.

3. In this very difficult market with many properties for sale, how do you help a facility achieve greater visibility and attract more buyers?

Bahrmasel: In addition to employing traditional marketing methods like newsletters, tradeshow participation and regular contact with buyers, the most important thing we can do in this market is make sure properties are priced correctly. Some sellers who set their prices based on old assumptions have seen their properties languish on the market. Others who are more in tune with current values or have reset pricing to reflect what is going on in the current market are receiving considerable attention, which may ultimately result in a transaction.

Goldman: Now is the time to explore new venues to get the word about self-storage to a newer profile of investors who are sick of the uncertainty of the stock market, retail centers, office buildings, etc. In addition to our traditional marketing, we’re expanding our programs to include alternatives such as Craig’s List and increasing our presence at state tradeshows.

Also, reaching out within the commercial real estate brokerage community is an effective way to increase interest in the self-storage asset class. In today’s market, non-storage brokers are more open to bringing their buyers to us, as the general velocity of investment real estate has slowed.

Hitler: There is currently a wide chasm between seller and buyer valuation expectations. Sellers still have 2007 values in their heads and have difficulty accepting that even though their business is generating the same revenue as 18 months ago, their properties’ value has fallen 10 percent or more because of macroeconomic conditions beyond their control.

Buyers, on the other hand, see what is happening in the residential market and believe these conditions must carry over to self-storage. To close this divide, sellers need to be more flexible, especially if the securing of bank financing continues to get more difficult for buyers. I foresee more deals using seller financing. Sellers also need to be prepared to throw in other terms that improve the value for buyers.

Johnson: Sales activity can be increased by targeting specific buyers, especially in small-town markets. In many cases, the right buyer for a property can be found in the same local area as they are the most familiar with that particular market. Local advertising in newspapers is a way to reach out to individuals who are not as familiar with the larger self-storage publications. Attendance at local and national tradeshows is another great way to increase the exposure of self-storage properties for sale to very targeted groups of potential investors. 

Michael L. McCune is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE.

Related Articles:

Self-Storage in the Western States: Real Estate Snapshot

An Open Letter: Self-Storage Real Estate in This Economy

The Storage Inn Celebrates 30 Years in Business

The Storage Inn in Egg Harbor Township, N.J., is celebrating 30 years in business this year. Launched in 1979 by Rudy Meckel, the facility was the first in the area. It started on 4 acres with four buildings that were designed to be converted to a flea market should the storage business fail. Fortunately for Meckel, the now 900-unit, 100,000-plus-square foot facility prospered.
 
In 1997, Meckel opened The Storage Inn II in Ocean City, N.J., which was converted from a former Stainton’s Department Store Annex. It features three floors of storage and retail.
 
Both storage facilities feature truck rental, free porter service (unloading assistance) and climate control. The Egg Harbor site also offers shelving rental, while the Ocean City site provides drive-in bays and indoor units. Meckel plans to offer new services, expanding into records storage and possibly boat/RV storage. 

Meckel is a proven entrepreneur. In addition to self-storage, he runs his family’s road-construction business, and once ventured into real estate with the construction of a local office complex and retail strip mall. The Storage Inn keeps his construction employees occupied during the off-season. Meckel shares operation of his businesses with son, Greg, and daughter, Heidi.

Also considered a gentleman farmer, Meckel adorns his self-storage grounds with a horse carriage or sleigh in blue and yellow, his company colors.

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Delinquent Storage Tenants Lose Property to Water Damage in Oildale

A couple who fell behind in rental payments on their unit at A-American Self Storage in Oildale, Calif., claim their belongings are water damaged due to a leaky roof. Beverly Steward and Todd Lee, who have rented a unit at the facility for about a year and a half, received letters from A-American indicating that their goods would be sold at auction due to non-payment. They scraped together $700 and visited the facility, which is when they discovered the damage.
 
Representatives from A-American said they found no water damage when they photographed the unit. They also said they attempted to work with the couple but could not come to a resolution. The couple’s tenant-insurance policy had also lapsed due to non-payment.
 
Source: KERO 23 Bakersfield, Calif., Water Damage Destroys Keepsakes At Storage Unit

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Evaluating Your Self-Storage Rental Agreement

Free Webinar on Self-Storage Refinance to Take Place May 20

On May 20, a free webinar on self-storage refinancing will be presented by the experts of Watermark Financial Inc., a Los Angeles-based commercial mortgage brokerage that focuses on the construction sector. The one-hour event, titled "Refinance: Closing Self-Storage Loans in Today’s Economy," will be presented by company President and CEO Georgia Ragsdale and Vice President Elizabeth Braman. Attendees will learn winning strategies to adopt and losing strategies to avoid in today’s challenging finance market. Topics will include how to qualify for refinance or acquisition funds, how banks look at loan a loan request, and how to position a loan for funding.
 
The webinar will take place at 2 p.m. ET. To register, visit MiniStorageMessenger.com.

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Marcus & Millichap Close Kentucky Self-Storage Portfolio

Marcus & Millichap Real Estate Investment Services recently closed the sale of the Best Self Storage Portfolio in North Kentucky for $9.9 million. The three-facility, 214,700-square-foot portfolio is in the Greater Cincinnati Metropolitan Statistical Area, just over the Ohio River in the growing suburbs of Crescent Springs, Florence and Walton.
 
Adam Schlosser and Brett Hatcher, self-storage specialists in the Marcus & Millichap Columbus office, represented the seller, a local LLC. Schlosser and Hatcher also secured the buyer, a non-publicly traded real estate investment trust, which was sponsored by US Commercial LLC.  Broker Aaron Johnson assisted in closing the transaction.
 
The portfolio contains three of 98 self-storage Marcus & Millichap’s National Self Storage Group has closed in the past 12 months.

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Overview of Self-Storage in Western Canada: Holding Steady During Difficult Times

The Canadian self-storage market experienced significant changes in mid-2006 with the formation of InStorage Real Estate Investment Trust (REIT), focused on the acquisition of self-storage facilities. In one year, the company amassed the largest self-storage portfolio in the country. In the process, cap rates went from the 8.5 percent to 9 percent range in 2006 to the 7 percent to 7.5 percent range in 2007.

Spurred by the activities of InStorage REIT as well as low interest rates and readily available financing, other portfolio owners became more aggressive in their acquisition activities and cap rates dipped to the lowest level ever seen for self-storage—below 7 percent.

Although there were a few sales in Western Canada in late 2007, there was almost no sales activity in 2008, evidence of a disconnect between vendors listing at 2007 cap rates and purchasers unwilling to pay 2007 prices in the changing economic climate. This period of limbo continued into early 2009.

Occupancies faltered in late 2007 (from 95 percent-plus in most markets) and seem to have dipped slightly in late 2008 and early 2009, but the outlook for occupancies in the year ahead is that they will hold steady. Supply increased at the usual rate in 2008, but the outlook for 2009 is for sharply reduced new supply.

Rents continued to increase in most markets through 2008, but the outlook for 2009 is that rents will be level or selective increases will be implemented in specific unit sizes based on occupancy. The general forecast for the year ahead is self-storage in West Canada will hold steady with a balanced supply in most markets.
 
New Development Slows

Most of the major markets in British Columbia and Alberta have experienced a significant increase in supply over the past five years. The Vancouver Lower Mainland supply has increased by more than 400,000 square feet, or an average of six facilities per year between 2005 and 2008. The average facility size is 55,000 square feet. The total supply is estimated at 5.7 million square feet in 106 facilities, or 2.33 square feet per capita as of December 2008.

The outlook for 2009 is for a very limited increase in supply. According to industry sources, 45,000 square feet comprising phase one of a new facility in Mission will open in March 2009. There is also a small expansion of an existing facility in Surrey under way (10,000 square feet), and completion of phase two of a new facility in Richmond may move forward in 2009, adding another 20,000 square feet.

Two new facilities are in the development-permit process and will add approximately 180,000 square feet to the supply if completed in 2009. One facility will be removed from the inventory through an expropriation for highway purposes. The potential net addition to supply in 2009 may be as low as 10,000 square feet.

The Capital Regional District has a supply of approximately 672,000 square feet in 21 facilities, with an average size of about 32,000 square feet. Supply has increased by almost 50 percent in the past three years. In 2008, two new facilities totaling 67,500 square feet were added to the supply. There are no new additions proposed for 2009.

The Nanaimo trade area has a current supply of 332,000 square feet in 14 facilities, with an average size of about 23,000 square feet. Construction for a large two-story facility (90,000 square feet) will begin soon.

Edmonton and Calgary each have an estimated supply of about 2.5 square feet per capita. The Edmonton supply was recently surveyed and comprises 2.34 million square feet, or 2.52 square feet per capita. The average facility size is 51,000 square feet, but average unit sizes are generally larger (130 square feet).

Three new facilities commenced construction in 2008, with a total area of just under 200,000 square feet. Two of these are currently leasing, the third will be completed in 2009. Phase two of one of the new facilities may be developed in 2009, adding another 40,000 square feet to the inventory, and an expansion of 39,000 square feet is proposed for an existing facility. Otherwise, there is no new supply proposed for 2009.
 
Rents Vary

The highest rents in Canada are found in the Lower Mainland, with the overall highest rent per square foot generated by a well-located facility in Vancouver at $3.24 per square foot per month, with an average unit size of 75 square feet. Otherwise, rents range from $1.31 per square foot per month in the suburban areas, depending on the unit mix.

Operators are reporting increased demand for smaller units because of price points. The majority of operators contacted said no rent increases were planned for 2009, or only selective rent increases by unit size would be implemented depending on occupancy.

Rents in Victoria are generally lower. The highest overall rents are being charged by two facilities with a small average unit size (45 square feet), which are obtaining an overall average rent of $2.55 to $2.72 per square foot per month. Otherwise, the range is from $1.56 to $1.79. Rents in most facilities were raised in 2008 be at least 5 percent.

Nanaimo rents are considerably lower than rents in either the Lower Mainland or the Capital Regional District. A 2008 survey determined the highest overall rent per square foot per month was $1.35.

A survey in Kamloops last year indicated the highest overall rent per square foot per month was approximately $1.45. This may change with the completion of a new 65,000-square-foot facility proposed for construction this year.

Edmonton rents are generally lower than those of the British Columbia urban centers, partly due to larger unit sizes. Projections for a multi-level new facility currently under construction with an average unit size of 106 square feet are at $1.51 per square foot per month. Recently reported average rents in two older facilities with average unit sizes of 130-plus square feet are in the range of $1.04 to $1.08 per square foot per month.

Prediction for 2009: Rents will remain level while incentives to lease up new space will increase. This could include free rent periods, free locks, free use of a truck to move in, etc.
 
Occupancy Levels

Occupancies in most western markets were in the 95 percent-plus range until fall 2007 when occupancies dropped by an estimated 5 percent and did not recover. Occupancies appear to have softened again in the last six months, and call volumes are reported to be down.

In general, the softening appears to be by 2 percent to 4 percent in the Vancouver Lower Mainland and Edmonton. Occupancies should hold steady this year, ranging from 85 percent to 90 percent in markets with a balanced supply.
 
Buyers and Sellers

The self-storage market in British Columbia in 2007 and 2008 was characterized by few sales. This was mainly because of lack of product on the market. One Lower Mainland portfolio was under offer for almost a year at a cap rate of about 6.3 percent before the purchaser closed the transaction in March 2008.

In 2008, there was one share sale of a small interior facility in the 9 percent-plus range. There is a reported recent sale of a small facility in Edmonton, which had not closed at the time of this writing in March. No income information is available, but the price per square foot is just under $100. The previous sale in 2006 was $71 per square foot.

The last sale in Edmonton was negotiated in 2007, closed in January 2008, and comprised the largest facility in the city. It is located on 12 acres of land, and the cap rate was in the 6.4 percent range. There have been no confirmed sales of self-storage facilities in British Columbia and Alberta since mid-2008.

On the national scene, InStorage REIT is in the process of being acquired by Canadian Storage Partners ULC, an acquisition that began with an unsolicited offer to the unit holders in mid-October. Canadian Storage Partners is a member of the TKG-StorageMart group that owns, operates or is developing 67 self-storage facilities in North America (principally in the United States).

By December 2008, the initial offer of $3.75 per unit (cash) had been raised to $4 per unit, and the InStorage board of directors recommended acceptance. The most recent announcement by Canadian Storage Partners (at the time of this writing) is the offer had been extended from Feb. 26 to March 13 pending consent from certain lenders or servicers of mortgage loans to InStorage.

InStorage made no new acquisitions in 2008 other than acquiring its own development arm, InScotia Developments, which added eight properties in varying stages of lease-up to a portfolio that now contains 60 operating facilities.

Public Storage, the second largest owner of self-storage facilities in Canada, purchased three development sites in 2008. The company operates 49 facilities in Canada, 25 owned by Public Storage Canadian Properties, a publicly held limited partnership, and 24 privately held by the Hughes family. Development has been initiated in Dorval and La Salle, Quebec, and the facilities are anticipated to be completed in late 2009. In October 2008, Public Storage purchased a site in Orleans, Ontario.

There is currently more product on the market, but asking cap rates are still in the 7 percent range in West Canada, and disconnect between vendors and purchasers continues. In 2009, expect cap rates to range from 8 percent to 8.5 percent, or 9 percent to 9.5 percent for non-urban properties.
 
Supply and Demand

For the first time in many years, several projects did not move forward in the Lower Mainland in 2008 because they were not economically feasible due to high land costs ($1.5 million or more per acre), high construction costs ($65 to $75 per square foot) and rent levels too low to justify the costs.

Self-storage financing has become difficult to obtain because of the perception of risk relating to tenant mobility. Significantly fewer lenders are willing to finance self-storage development. The most important factor influencing self-storage development is the tightening of financing with fewer lenders, higher equity requirements, higher fees and interest rates.

Lease-up of new facilities in oversupplied markets has been slow—less than 2 percent per month. Facilities in lease-up are increasingly aggressive in securing tenants, which affects rents in individual markets. However, lease-up in markets that are undersupplied continues to be strong. One new facility reports 35 net units leased per month; another reports 50 percent lease-up in five months.

The self-storage market is being affected by the same economic forces influencing other industrial-commercial investment properties resulting in projected level rents, softening occupancy, higher cap rates and reduced development. Summing up the Western Canada outlook for 2009, I anticipate the market will hold steady in rents and occupancy. There will be limited additions to supply, and cap rates will return to pre-2007 levels.
 
Candace Watson is the principal of Canadian Self Storage Valuation Services Inc., which provides appraisal and feasibility analyses to self-storage owners and developers. Watson has been appraising self-storage facilities since 1978 and has evaluated approximately 40 percent of the current supply in the Lower Mainland. She is a regular speaker at industry tradeshows and conferences. To reach her, call 604.681.2929; e-mail [email protected]

Related Articles:

A Year for Expansion: Self-Storage Canada in 2007

Financing Canadian Self-Storage: Requirements Change, Development Continues